Brought to you, courtesy of Estate Agency Affairs Board, by. Graeme Jay

Transcription

1

2 Brought to you, courtesy of Estate Agency Affairs Board, by Graeme Jay

3 Financial Management Outcomes: Understanding the accounting cycle; Accounting principles; Budgeting for an estate agency; Maintaining financial records; Interpreting financial statements; and Month end reporting.

4 1 NATURE AND ROLE OF ACCOUNTING

5 Role of Accounting To produce financial reports on an economic entity; On which informed decisions and judgments about the entity can be made;

6 Users of financial information Primary users; Secondary users

7 What is Accounting The process of classifying and recording transactions; In terms of money; In the books of account (Bookkeeping); and Summarising, reporting and interpreting the results thereof (Accounting);

8 Underlying Assumptions Accrual basis - Transactions reported in the period in which they occurred; Going concern - Business assumed to continue in the future; Entity convention - Accounting separates business assets and liabilities from owner s assets and liabilities;

9 Accounting Cycle 1) Deposit fees 4) TRIAL BALANCE 6) BALANCE SHEET 2) Books of original entry Pay chq Receipt Journal Dr: Bank Cr: Fees Dr: Debtors Cr: Fees A E D L I C C Fees Bank Salaries Furn Capital Dr Cr ASSETS: (What we own) Non-Current Assets Land + Bldgs Furn + Equip Current Assets: 0 3) LEDGER ACCOUNTS Fees Bank Bank (M.Laher) (M.Laher) Drs (M.Lather) Bank Fees Fees (M.Laher) (M.Laher) Drs (M.Laher) Debtors Fees Bank (M.Laher) (M.Laher) 0 5) INCOME STATEMENT Fees Sales - Exp -COGS NIBT O/Stock + Purch -C/Stock G.Profit - Exp NIBT Stock Debtors Bank Liabilities and Equity (What we owe) Creditors Equity Copyright Graeme Jay and CPMD

10 The Main Financial Statements Balance sheet (Statement of Financial Position); Income statement (Statement of Income); Statement of changes in equity; Cash flow statement;

11 2 INCOME STATEMENT (STATEMENT OF INCOME)

12 Recognition of revenue and expenses Revenue - At time of legally enforceable sale; Expenses - At time and for period incurred; (Time of receipt of revenue and payment of expenses is immaterial)

13 3 BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)

14 Format of the Balance Sheet Assets Non-current assets (fixed assets); Current assets; Equals Equity plus liabilities Owner s equity; Non-current liabilities; Current liabilities;

15 4 ACCOUNTING FOR DIFFERENT BUSINESS FORMS

16 Sole Proprietorship Single owner of a business; No legal separation between owner and business; But entity principle applies for accounting purposes;

17 Partnership Also no legal separation between owners (partners) and business; Entity principle also applies; Partners cannot be employees of business; Salaries and interest on capital paid to compensate for inequities in time/contributions;

18 Close Corporation Corporation registered in terms of Close Corporation Act; Corporation is a separate legal entity; Members have limited liability; Certain, requirements in terms of Act (but less than a company);

19 Company Basic Form and Nature Separate legal entity; Owned by shareholders; Governed by directors; Indefinite life; Shareholders have limited liability;

20 5 ANALYSIS OF FINANCIAL STATEMENTS

21 Analysis of Financial Statements accounting has no other function than to produce reports on which economic decisions can be made Economic decisions based on: Fundamental analysis of company; Analysis and interpretation of financial statements;

22 Limitations of financial analysis Ratios and percentages must always be compared with something: Industry norms Previous years Balance sheet values can be misleading;

23 Analysis of Financial Statements Classification of financial ratios and percentages: Profitability; Efficiency; Liquidity; Gearing;

24 Analysis of Financial Statements Profitability ratios Return on owners equity (ROE); Return on capital employed (ROCE); Return on investment (ROI); Gross profit margin; Net profit margin;

25 Analysis of Financial Statements Efficiency ratios How well is the business using and managing its current assets of inventory, receivables and cash? Average inventory holding period; Average settlement period for receivables; Average settlement period for payables; Operating cash cycle;

26 Analysis of Financial Statements Liquidity ratios; Liquidity: the ability of a business to meet short-term liabilities; Current ratio; Acid test ratio;

27 Investment ratios Earnings ratios; Dividend ratios; Net asset value per share;

28 Budgeting for an estate agency You run your own agency and have the following monthly expenses: 1. Rent = R8 000 per month. 2. Telephones = R2 500 per month. 3. Administrative staff salaries = R8 000 per month. 4. Stationery and consumables = R1 500 per month. 5. Advertising = R per month Questions: 1. If you are able to achieve a gross commission of 7.5% on each and every sale that your agents make, what is the value of the property that your agents need to sell every month in order to cover your expenses? Ignore VAT and assume a 50/50 split between your agents and the agency. 2. If your agents are able to convert 6 out every 10 listings into a sale, how many mandates must your agents take on a monthly basis? 3. Assume that of 6 sales mentioned above, that on average, 2 of the sales commissions are received 2 months after the date of sale, 2 are received 3 months after the date of sale and 2 are received 4 months after the date of sale. Plan a cash budget for January to December.

29